TCS’ year-on-year constant currency revenue growth moderates to 13.7%

TCS

Tata Consultancy Services (TCS) reported moderation in year-on-year (YoY) revenue growth in constant currency (CC) terms. Full-year revenue growth for FY23 in CC terms came in at 13.7 percent YoY down from a 15.4 percent growth YoY in FY22, as certain key markets such as North America continue to remain weak and challenging.

Constant currency refers to a fixed exchange rate that eliminates fluctuations when calculating financial performance figures. For IT services companies, which have operations in other countries represent their  their earnings in CC terms since floating exchange rates can often mask true performance.

In INR terms, however, TCS' full-year revenue for FY23 stood at Rs 225,458 crore against Rs 191,754 crore in FY22.

EBIT margins contracted 0.5 percent YoY at 24.5 percent for the quarter. On a sequential basis, it remained flat.

TCS CEO and MD Rajesh Gopinathan remained cautious of the environment, adding that the demand scenario varies depending on the markets too.

“At the start of the year, we expected North America to recover well, that has not happened. Other markets have grown as expected. The UK has been strong and we are increasing growth in Europe,” he said addressing the media.

Gopinathan added, “Expect near-term weakness in North America on the back of BFSI. Near-term needs to be watched. Demand for tech-led transformation and optimisation continues to be strong but requires a very nuanced approach by market and vertical.”

TCS has the highest exposure to the BFSI sector among its Tier-I peers with around 35-40 percent of its revenue coming from this vertical. The global banking crisis that erupted over the past couple of months with the collapse of the regional US banks including Silicon Valley Bank, Signature Bank and Swiss bank Credit Suisse to name a few, led to customer sentiments worsening.

Samir Seksaria, CFO of TCS said, “What we saw at the beginning of the year and how macro environment and client sentiments turned increasingly negative getting into February and March is something that reflected into both revenue and cost sides. With discretionary spend getting impacted, the revenue also gets impacted.”

He added that though going by the order book customers are opting for cost take out and larger transformations, TCS is seeing current projects being deferred.

On achieving TCS’ operating margin target band of 26-28 percent, Seksaria said, “A 26-28 percent operating margin is our guiding beacon. The management teams across units believe our long-term cost structures help us deliver and maintain that margin band. But due to the current uncertainties, it’s difficult to predict when we will reach there."

CEO designate K Krithivasan, who heads the company’s BFSI vertical, said that sentiments were down in the BFSI sector adding that people rushed to save costs.

“People rushed to save costs. It's more sentiments at play than anything structural. Large bank clients are benefitting from increasing deposits in North America. Some issues in the US, other markets are doing quite well for us,” Krithivasan said.

Not just TCS, which doesn’t give revenue growth guidance anyway, rivals like Cognizant too had cut its full-year revenue guidance.

In November, the company cut its revenue growth guidance in constant currency terms for the full year from 8.5-9.5 percent to 7 percent. It was revised downwards in the quarter before that as well.

Meanwhile, Infosys which is set to announce its numbers on April 13, had increased its full-year revenue growth guidance in January on the back of expected large deals.

Infosys revised its full-year FY23 revenue growth guidance to 16-16.5 percent from 15-16 percent.